ASIA STOCKS: Asian Equities Mixed, Ahead Of US CPI Tonight
Asian markets traded mixed as investors awaited key US inflation data for clues on Federal Reserve policy. The MSCI Asia Pacific Index was little changed, with modest gains in Japan, South Korea, and Hong Kong, while Chinese equities were mixed. The PBOC injected significant short-term liquidity to ease a cash squeeze ahead of the Lunar New Year, highlighting its easing stance. Indian stocks extended gains, driven by energy and utility sectors, while foreign outflows from Indian equities continued in January. South Korea's unemployment rose to its highest level since mid-2021 amid political uncertainty. Meanwhile, oil prices steadied after recent declines, and the dollar consolidated after the previous session's losses. Overall, sentiment remained cautious ahead of the U.S. CPI report, which could shape global monetary policy expectations.
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FOREX: Yen Underperformance Against Higher Plays Continues
The USD BBDXY index sits slightly lower for the session, with higher beta plays outperforming in the G10 space. The index was last near 1287.5, off close to 0.10% in the first part of Monday dealing.
- AUD and NZD have edged higher as the session progressed. AUD/USD last near 0.6380, NZD/USD to 0.5780, both up nearly 0.30%.
- Cross asset moves have been mixed, US equity futures are up a touch, while US yields are slightly lower, but aggregate moves are modest. Regional equity markets are mostly down, with focus on HK/China markets (losses are less than 1.0%).
- China data for Nov was mixed, but still mostly leaving question marks around the durability of the recovery, particularly from a consumption standpoint) post the retail sales miss).
- Earlier NZ monthly inflation data was consistent with further RBNZ easing, while PM Luxon noted the very challenging economic conditions at the moment (albeit with some signs of improvement).
- The Australian Treasurer announced two new members to the RBA monetary board (which will now be split into a monetary and governance board), but near term policy continuity is likely.
- USD/JPY has mostly drifted higher, getting too fresh multi week highs of 153.97, but we sit slightly lower now, last near 153.85/90. AUD/JPY is back to 98.15/20, also multi week highs. This continues last week's trend of yen underperforming higher beta play like AUD and NOK.
- Looking ahead, December PMIs for the US and Europe print. The ECB’s Lagarde, Schnabel and de Guindos speak as well as the BoC’s Macklem.
BONDS: ACGBs Trade Cheaper, Chalmers Announces New RBA Board Structure
Similar to NZGBs, Aussie bonds opened cheaper and have since traded in narrow ranges throughout the session. Focus was on China were they had a flurry of economic data, however there was little reaction across asset classes to the mixed data, notably Retail Sales coming in a 3% vs expectations of 5%.
- Earlier, Chalmers announced the The RBA's new governance structure, effective from March 2025, introduces two boards: one for monetary policy and one for governance. The monetary policy board will include two new members, Professor Fry-McKibbin, a monetary policy expert, and former Bendigo Bank head Baker, alongside existing members Harper, Watkins, Ross, Hewson, and key officials like Governor Bullock. The governance board will feature Schwartz as deputy chair and new appointees including Westacott, Gilbert, Thodey, and Dave.
- ACGBs have traded in narrow ranges today, yields are currently 1.9bps to 4.6bps cheaper. The 2yr is +1.9bps at 3.912% and trade about 12bps cheaper over the past three sessions, while the 10yr is +2.3bps at 4.309%, The 2s10s is +0.5bps at 38.260
- ACGB futures are currently YM -2.6, VTA -2.0, XM -2.8
- Swap curves have flattened, short-end is flat, while the belly to long end is trading -1 to 3bps
- Bill strip is -1 to -2
- RBA-date OIS pricing is little changed today for the Feb meeting, with 13bps of cuts price. The market is pricing in a 90% chance of a 25bps cut for the April meeting, and 42bps of cut priced for May. Looking out to November 2025 the market is currently pricing in 73bps of cumulative cuts
- Tomorrow we have Westpac Consumer Confidence, with little else on the calendar for the rest of the year.
JGBS: Yields Play Catch Up With Core Gains, Futures Still Above Recent Lows
JGB futures have shown more of a downside bias post the lunch time break. We were last 142.35, -.22 versus settlement levels. Lows so far in Dec have largely been in the 142.10/20 region, which haven't been tested so far today.
- US Tsy futures have ticked up, leaving JGB futures underperforming, but this follows last week's outperformance trend from JGBs. US moves in the 10yr space are also relatively modest.
- JGB yields have all ticked higher, with the back end of the curve slightly firmer in yield terms. The 10yr was last 1.066%, up 2.4bps. The 20-40yr tenors were up nearly 3bps.
- It is a similar backdrop in the swaps space, with the 20-30yr tenors closing in up on recent highs, both up nearly 5bps respectively.
- Earlier data was encouraging in terms of higher core machine orders, while the PMIs rose, although manufacturing is still sub the 50.0 expansion/contraction point.
- Tomorrow the data calendar is quiet but we do have 20yr supply.
